Enterprise and Small Business Principles

The development of the field of entrepreneurial personality and behaviour

Figure 8.1 illustrates the complexity and the inherent problems associated with the psy­chological perspective. It is composed of four boxes each containing a basic question relating to the research field and numbered from one to four. The numbers represent the approximate historical evolution of the field. In short, research started first with trying to find a personality profile describing entrepreneurs (Box 1) although it became clear that more conceptual work was needed to define what an entrepreneur really is

and what he or she is performing (Box 2). This conceptual work led to a greater aware­ness that entrepreneurs act at different stages in a business’s development. Research then focused on relating different personality traits to the firm’s performance (Box 3). However, trait theories were proven not to be a viable alternative in explaining entre­preneurial behaviour and cognitive motivation models have been adopted instead (Box 4). It is worth noting that the boxes are interrelated and that one question cannot be answered without taking the other questions into consideration.

8.4.1 Who is an entrepreneur? Understanding the concept of personality

Personality is often loosely defined in terms of regularities in action, feelings and thoughts that are characteristics of the individual (Snyder and Cantor, 1998). In other words, there is supposed to be a set of characteristics or traits that are stable across situations and time. This means that one hopes to find an entrepreneurial personality profile that can help to better understand which characteristics lead to success and which to failure. If it were possible to identify such personality characteristics, the financial risk exposure of venture capitalists and bankers could be limited by giving them an effective selection instrument. Furthermore, it would be possible to encourage those with the winning personalities and discourage those with failing personalities to engage in an entrepreneurial career. However, the search for the entrepreneurial per­sonality stumbles upon several problems.

Inconsistency

The first problem of the perspective is the inconsistency of such an approach due to the large number and variants of traits. Furthermore, researchers have not reached con­sensus on the relevance of these individual characteristics, their importance and how they vary in different situations. For example, Hornaday (1982) identified more than 40 traits that have been associated with entrepreneurs, and the most popular identified by previous research include the need for achievement, internal locus of control, risk - taking propensity, tolerance for ambiguity, over-optimism and the need for autonomy. Thus, there is a rich abundance of different characteristics that are attributed to the entrepreneur, which will be explained in greater detail later in this chapter. For the moment, it is important to remember that it is difficult to reach a common frame of reference because of the large number of characteristics and their definitions.

The static nature of entrepreneurial characteristics

The second problem is the assumption that the variables characterising the entre­preneur and the environment are static. However, it is clear to all that the environment changes constantly and traits or characteristics alone have very little ability to explain behaviour. Thus, the external validity of the psychological trait approach can be questioned.

Obsolescence of current theory

The third problem is that the theory and methods in use are, in relation to modern psy­chological research, obsolete. The concept of personality is not one-dimensional (and measured with only one trait) but multi-dimensional. An individual’s personality is now mainly measured in five broad dimensions called the ‘Big Five’ (cf. Goldberg, 1993; Hogan, 1991; Hogan et al., 1996). Hence, when measuring personality, the measures should include at least these five dimensions of interpersonal evaluation. The five dimensions are extraversion, emotional stability, agreeableness, conscientiousness and openness to experience. Indeed, recent findings in entrepreneurship research show that an entrepreneur’s conscientiousness was positively related to long-term survival; the entrepreneur’s openness was relatively associated with survival; and the other three measures were not related. Survival was measured as the ability to maintain the opera­tions of the same firm for the minimum of eight years (Ciavarella et al., 2004). How­ever, the results should be interpreted with caution, as it is only a first attempt to map the relationship between the Big Five and entrepreneurial performance.

Furthermore, it is not possible to state unambiguously that differences are due to predispositions (i. e. not yet having managed a venture) or are the results of having entre­preneurial expertise (i. e. already managing a venture) (Mitchell and Seawright, 1995).

In other words, the fact that entrepreneurs exhibit certain characteristics does not necessarily mean that they had them from the very beginning. These characteristics could have been developed during the time they have been entrepreneurs. It is there­fore difficult to state clearly if the characteristics exhibited by entrepreneurs are causes of previous life experiences or the result of being an entrepreneur.

American bias

Finally, there is the problem that the research is mainly based on US samples. As a result, it has been argued that many of these characteristics (especially the need for achieve­ment) are culturally dependent and as a consequence lacking of predictive power in other cultures (Spence, 1985). Research findings about entrepreneurs’ attitudes in different countries give some support to this argument, at least when the US is compared with Asian countries (Stimpson et al., 1990).

The inability to handle these five problems in the field of entrepreneurship has led to the abandonment of the attempts to identify a single trait. Instead, researchers have attempted to adopt increasingly complex approaches in the hope of more fruitful results. More specifically, social psychological models incorporating individual characteristics and social contexts have been proposed to understand better the psychology of the entrepreneur (Herron and Robinson, 1993; Katz, 1992; Krueger and Brazeal, 1994; Starr and Fondas, 1992). In addition, researchers are now increasingly developing stud­ies which attempt to understand what entrepreneurship really is and how it can be bet­ter measured, i. e. defining entrepreneurship and understanding how an entrepreneur performs.

8.4.2 What is an entrepreneur? Defining the concept

Whilst defining an entrepreneur is beyond the scope of this chapter, it is enough to remind the reader of the diversity in definitions and the fact that there is no general agreement of what is and what is not entrepreneurship. However, the characteristics associated with entrepreneurship have mainly been examined by concentrating on dif­ferences between entrepreneurs and other groups (Low and MacMillan, 1988). Thus, previous research has tried to link the state of being defined as an entrepreneur to dif­ferent personality traits. This is problematic as it assumes that entrepreneurs are a homogeneous group. However, it is clear that this is not the case as individuals will start businesses for different reasons. Whilst some are only interested in having an extra income in addition to their regular jobs, others only want to create a business large enough to support them and their families. In addition, there are a few individu­als who want to create a fast-growing expanding business.

One of the first studies to differentiate entrepreneurs specifically was the work of Smith (1967), who examined the differences between the type of entrepreneur and the type of firm created by the entrepreneur, with the basic assumption that the way the firm was organised and performed was reflected by the personality of the entrepreneur. He identified two types of entrepreneur:

■ the craftsman-entrepreneur

■ the opportunistic-entrepreneur.

It was assumed that the craftsman type had a lower education, preferred manual work and wanted a stable income to support the family. On the other hand, the opportunist had a higher education, was more prone to be a leader and expand the business. Even if this may now seem an overly naive conception of entrepreneurship, it has the import­ant advantage of highlighting the difference among entrepreneurs themselves. There­fore, it is a serious flaw of research not to acknowledge that entrepreneurs have totally different personal goals and, as a result of these, very different business goals.

It is therefore more accurate to assume heterogeneity and focus on differences between different types of entrepreneurs. More precisely, research has become more aware of the problem of defining entrepreneurship and now pays more attention to problems of definition and the need to examine entrepreneurship at different points of the dynamic process of business creation and expansion.

8.4.3 How do different entrepreneurs perform?

The previous two sections have described the development of the field from a simple assumption that entrepreneurs are all alike (but different from other people) to a more complex picture where entrepreneurship can be studied at various stages of a firm’s development and that entrepreneurs as a group are very heterogeneous. One con­sequence of this is that research moved towards trying to explain the performance of the firm by examining the link between different personality characteristics of the entre­preneur and contingency variables such as age of firm, industry affiliation and organisa­tional structure (e. g. Miller, 1987a; Miller and Toulouse, 1986). However, even if the models had evolved from simple trait-states models (as described previously) to more complex models taking into account the characteristics of the firm as well as the char­acteristics of the entrepreneur, the results were still weak. Two main explanations of this can be identified: namely the definition of performance and the link among per­sonality characteristics, entrepreneurial behaviour and business performance.

To start with, what is meant by performance in this case? Three different measures are most often associated with the concept of performance:

■ Survival of the firm - what factors influence the long-term survival of the firm?

■ Firm growth - what factors affect the expansion of the firm?

■ Firm profitability - what factors influence the firm’s ability to generate profits?

These performance measures can then in turn be operationalised in a number of ways, thus adding to the confusion (Delmar, 1997; Murphy et al., 1996). However, this is not the main problem, which remains one of linking traits to behaviour and then link­ing behaviour to business performance. When modelling behaviour and subsequent per­formance, psychologists tend to make a difference between distal and proximal factors affecting behaviour (Ackerman and Humphreys, 1990).

A distal factor is one that may explain general behaviours (such as eating, sex drives and sleeping) but which has little ability to explain how individuals act in a specific situation. For example, individuals have the need to eat and the explanation is that they have to refuel energy supplies in order to survive. However, the explanation that behaviour is driven by needs will not explain why one will have a preference to eat hamburgers instead of an a la carte dinner.

A proximal explanation looks at factors defining the situation in which individuals find themselves when choosing to go to a restaurant instead of a hamburger bar. For example, it is Friday night, they have just received a pay cheque and want to impress people. Therefore they choose to go to a fancy restaurant to eat instead of choosing a hamburger bar. The actual behaviour is then better explained by proximal factors (task characteristics) than by distal factors (traits and needs). Traits are, in general, dis­tal factors and they therefore have little ability to explain actual behaviour and even less business performance.

Furthermore, the entrepreneurial venture can be characterised as highly complex, i. e. the demands on an individual in undertaking simple tasks such as playing pinball are very different from those of starting and maintaining a business. Campbell (2003) suggests business venturing is an example of one of the highest degrees of complexity, and these so called ‘fuzzy tasks’ (characterised by the presence of both multiple desired end-states and multiple ways of attaining each of the desired outcomes) are also char­acterised by uncertainty and conflicting interdependence. In such a case, the relation between behaviour and performance is weakened by the interactive effects between motivational processes, cognitive abilities and environmental factors. Not acknow­ledging this lack of correspondence between behaviour and performance has serious consequences for understanding the effects of motivation on entrepreneurial perform­ance. For example, whilst motivation can yield high levels of cognitive effort, if it mis­directed, then there will be a failure in performance (Kanfer, 1991). Thus, as McCloy et al. (1994) suggest, a successful entrepreneur will have to:

■ possess the requisite knowledge;

■ master the requisite skills;

■ actually choose to work on the job tasks for some period of time at some level of effort.

To sum up, research examining the different traits or other psychological factors characterising the entrepreneur needs to take into account the complexity of the entre­preneur’s situation. This is because trait theories are not sophisticated enough to account for the complexity of entrepreneurial behaviour. Therefore, research has evolved towards more proximal explanations where entrepreneurial behaviour and business performance are explained by more proximal psychological theories and where the effect of the situation is better controlled.

8.4.4 Why become an entrepreneur? The cognitive approach

The studies examined so far have concluded that the trait approach has not given any insight of great value. The assumptions behind entrepreneurial behaviour have been far too simplistic by trying to relate a trait to the state of being an entrepreneur or the performance of the firm. It is therefore impossible to say that entrepreneurs are char­acterised by traits predestining them to engage in business activities. Entrepreneurs are not, to a large degree, different from people in general. However, this does not explain why certain individuals still choose to undertake an entrepreneurial career. The reason for this probably lies in the fact that the same situation is perceived differently by

different people depending on their previous experiences. Simple trait theories cannot account for that and the research field has now turned its attention towards theories that help us to understand how people perceive and understand the world and how it affects their behaviour. Theories trying to explain behaviour by individuals perceiving and interpreting the information around them are called cognitive theories.

Paralleling the development of social psychology, entrepreneurship research has moved from simple trait theories towards more cognitive theories that are better able to explain the complexity inherent in entrepreneurial behaviour. Cognitive theories assume that individuals do not possess a perfect knowledge of the world because there simply is too much information out there to handle. As a consequence they have to select information and interpret it, and thus based on their previous experience they tend to see and know the world differently (Taylor, 1998). For example, what is seen as business opportunity for one person is seen as an enormous problem impossible to solve by another. In short, individuals are actively involved in the construction of their own realities.

The use of cognitive theories enables a better understanding of why people engage in an entrepreneurial behaviour. The contribution of these theories is that they make it possible to understand better the interaction between the characteristics of the situation and characteristics of the entrepreneur. In other words, there is a movement from studying the personality of the entrepreneur to study the situations that lead to entrepreneurial behaviour (Baron, 1998; Carsrud and Johnson, 1989; Shaver and Scott,

1991) . Behaviour is heavily based on how individuals perceive the situation or envir­onment and how it is presented to them.

In other words, behavioural patterns are the products of two psychological pro­cesses. The first process operates through the selection of environments and the second through the production of environments. When people have gained certain preferences and standards of behaviour, they tend to choose activities and individuals who share the same set of preferences, thereby mutually reinforcing pre-existing personal inclina­tions and fixed courses of actions (Bandura, 1982; Deci, 1992a). More precisely, the individual characteristics leading to an entrepreneurial career are only activated when exposed to a favourable socialisation process, where an entrepreneurial career is seen as a viable possibility among others. Thus the social environment is of primary import­ance to foster future entrepreneurs. The general idea is that individual characteristics are precursor traits and in the context of a given ‘cafeteria of experiences’ help to determine both how experiences are weighted or attended to and how the individual reacts to those experiences. That is, individuals will only activate their entrepreneurial potential if:

■ they have a certain specific ability and sensitivity,

■ there are environmental possibilities,

■ they have social support.

These three prerequisites must be fulfilled if actions are to be taken to become an entrepreneur. Thus the relation between intentions to act in a certain direction, the cur­rent situation and experience form the base used to better understand human and, of course, entrepreneurial behaviour. Actually, this interaction between ability or skills, environmental possibilities and social support is likely to lead to a positive reinforcing spiral where the entrepreneur is supported and therefore can further develop his specific set of skills. Hence basic intelligence coupled with an interest in becoming an entrepreneur leads the individual to develop the skills needed to become successful. These skills have been termed successful intelligence, which is a sort of intelligence that is truly task specific (Sternberg, 2004). Successful intelligence is the ability to succeed in life according to one’s life goals, within one’s environmental context. Hence, success is defined in terms of personal goals.

Thus, two questions arise from this section and the previous one on the character­istics of the entrepreneurial situation:

■ How do people come to choose an entrepreneurial career?

■ What does the entrepreneur need to learn in order to perform satisfactorily or successfully?

These are questions that are not easily answered without taking into account the com­plexity of human nature based on previous experience, abilities and intentions to act. The research field of entrepreneurial behaviour has, as a consequence, come to rely more and more on complex cognitive models, and especially cognitive motivation models, in order to better understand and explain the functioning of entrepreneurial behaviour, and the next step of linking actual behaviour to business performance. This is a very posi­tive development, because the use of more sophisticated psychological models enables the research to make better sense of the findings in other fields of entrepreneurship.

Motivation theories provide a good support to understand the choices made by entrepreneurs and why they persist in doing what they are doing. They are easy to operationalise and have proven validity. Thus there is a good and reliable understand­ing of what motivates entrepreneurs. However, it is still problematic to understand the link between intention to do something and actual behaviour because motivational theories tend to focus on volitional behaviour, and a large part of entrepreneurial behaviour is dependent on available resources, the cooperation of others and skill. The interaction between motivation and the development of cognitive abilities represents an important avenue for future researchers interested in understanding entrepreneur­ship (Ackerman and Heggestad, 1997; Ackerman et al., 1995; Sternberg, 2004).

8.4.5 The development of research in entrepreneurial behaviour

This section has shown that this research area has been dominated by four different basic research questions:

■ Who is the entrepreneur?

■ What is an entrepreneur?

■ How does an entrepreneur perform?

■ Why does an individual become an entrepreneur?

It was suggested that the elaboration of these four questions could explain the develop­ment of the research field from starting with a simple quest of trying to link single traits to the state of entrepreneurship to complex cognitive models taking into account the heterogeneity of entrepreneurial behaviour. In other words, the field has developed from examining personality traits in isolation to examining the interaction among the entrepreneur’s perception, intention, ability and characteristics of the situation. Thus, the research field in general does not offer an easy answer to the question of who is an entrepreneur. Instead, it has evolved towards acknowledging entrepreneurship as a process that is created by entrepreneurs in cooperation with others. In short, entrepreneurial behaviour should be regarded as the consequence of person-situation interactions.